Marijuana Investment Is A Bad Idea

marijuana investmentThe topic of marijuana investment has come up a lot recently since Colorado and Washington made its recreational use legal. Advocates are doing whatever they can to drum up support in the hopes that the proper funding will be thrown at candidates to pass laws in other parts of the nation in hopes of further expansion. They claim that it is the panacea of state and federal budget woes, among other things.

The problem is it isn’t true.

First of all, there is a myth that the millions and billions of dollars in marijuana revenue will suddenly pop into the pockets of government coffers and business people. This is based on the assumptions and numbers of an illegal product. However, there are no drug-dealer/Silicon Valley profits to be made. The government regulates each aspect of marijuana to be sold, including its price, maximum yields, caps on the number of licensed growers at any given time, and a number of other factors that severely limit it as an investment opportunity. The reason marijuana commands such a high price right now is because it is illegal, and therefore (supposedly) hard to get. Once it is freely available without the risks involved in its sale and purchase from established businesses, it will fail to command the prices that it currently does.

Another pitfall of marijuana investment is no companies have much of a history in the marijuana industry, because the industry itself has barely come into existence. While getting in on the ground floor is great in theory, that is usually for established industries and markets which provide a general framework to guide new companies. Such a framework doesn’t exist here. That doesn’t mean it isn’t possible for such a business to be successful, but the likelihood of failure skyrockets, and with the regulations involved, there isn’t much more potential gain for that increase in risk and likelihood of losing your money.

The industry is growing, they say. True, but what marijuana industry that does exist has its foundation firmly set in hemp products, and not in marijuana itself. Of course, this is what supporters of marijuana legalization claimed was the biggest boon to society early on—that hemp would save the world—so it shouldn’t be a surprise that’s where nearly all efforts were initially focused. Now, the gains made by hemp are being attached to marijuana in an attempt to connect irrelevant data to a product that doesn’t exist in the market yet.

Advocates also say it isn’t just about the product, but the surrounding industries as well. True, but let’s look at the growing and production equipment market. Max limits on how many dispensaries can exist at a given time means two things. The first is that the cost entry point will be incredibly high since it is a very narrow market. The second is that such businesses are unsustainable, as future well-established brands will have their equipment already and those brands that fail will have to sell their assets off as part of their bankruptcy, giving new businesses steep discounts on the same equipment.

As addicts and alcoholics, there is always a draw to our old habits, but it might look differently. We may think of all the time and money we spent in our addictions, and then think, “Well, yeah, this could be a huge opportunity!” However, we have to remember that people like us are in the minority. As with any new industry, there are going to be a lot of scams, and a lot of legitimate failures. However, when the outcome of a scam and a failure are the same, does it make marijuana investment seem any more attractive?

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